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President Obama just made it easier for you to earn an advanced degree (including an MBA!)

November 12, 2012 | Jamila Akil |

The changes initiated by the Obama administration to the federal government’s Income-Based Repayment (IBR) program for federal student loans have recently been finalized, and students can expect to see big savings in the amount they will have to shell out in student loan repayments. In other words, it just got a whole lot cheaper for students to attend school, and those pursuing advanced degrees should expect to see the biggest savings.

Here’s how the changes work. Obama’s plan, referred to as the “Pay as You Earn” plan, will reduced the cap on loan payments from 15 percent of the borrower’s income to 10 percent; loan forgiveness will be possible after 20 years instead of the previous 25. The Department of Education announced the changes on November 1st, so borrowers shouldn’t have to wait too long to begin enrolling in the new plan.

Jason Delisle, head of the Federal Education Budged Project at the New America Foundation and co-author of a new report on the “Pay as You Earn Plan” has this advice for those considering pursuing an advanced degree, specifically an MBA:

My advice to people who are about to enter graduate school or get an MBA would be to borrow as much money as they possibly can through the federal student loan program. They shouldn’t use their own money, savings, or income to pay for it because the risks or the downside of this having real financial consequences for you, provided this program is in place, are almost zero. And to the extent that there are risks, they are well worth taking because the potential upside is pretty big on this.

But obviously, as famed Chicago School economist Milton Friedman once said, “There is no such thing as a free lunch”.

So the question becomes how will the portion of the student loans that doesn’t end up being paid for by the students eventually be repaid? Debt doesn’t just go, “poof!“–not even federal government debt. Those same students who become high-earners after earning their degree–and who had a large chunk of their loans forgiven–may end up having to pay higher taxers to pay down the federal debt.

I wonder how that’s going to affect me. I just got my Master’s in May and have ~$40k in loans to pay back.

Jamila

@Bookworm51485 What did you get your master’s in?

The Department of Education will probably allow people to start signing up for this new repayment plan within the next few months, now that we know all of the details have been finalized.

It’s too late for you take out any more loans though. (But that’s not necessarily a bad thing.)

Criticalthinker

@Jamila @Bookworm51485 This is a great article Jamila, and good info for those of us with advanced degrees who pursued these in the last decade. Keep us posted of what to do to sign up for. Links or whatever else would help.

Jamila

@Criticalthinker @Bookworm51485

“Keep us posted of what to do to sign up for.”

I will definitely do this.

Criticalthinker

@Jamila @Bookworm51485 Let me add, I did the stupid thing and paid for my professional education (mostly out of my own pocket, hard as hell) but the little I did take out, I wanted to be able to pay it back myself….I didn’t want anyone to help me, including my fiance at the time) because I felt I made the decision to go there. Anyway, it is hard, but any help will help…That is great what the Dept. of Education is doing…

Bookworm51485

@Jamila I have a Master’s in Library Science. I’m pretty lucky that I managed to get a job right away (I know some who spent over a year or more searching), but it’s only 16 hours a week (was 20, but my hours just got cut), so it doesn’t add up to much.

ChristieRJohnson

I graduated in 98, and still have a little over 17K to pay back. I’ve made peace with the fact that I may never pay it back, then again, my payment is small and managable. I thought about grad school overseas, but among other things, I’m concerned about my loan payment afterwards; especially due to the job market. Nothing in life is garunteed, but one has to think about these things, especially if one is older. Most things can be fixed, it’s just the question of time; when you’re young, you have more time.

My husband and I were able to graduate from college without any student loan debt, thankfully. Now, we just have to ensure our children will be able to get through college with little to no debt as well.

VictoriaAntoine

Personally I am still in school. My student loans would be lesser because I started paying the interest while in school and Also trying to get alot alot of scholarhsips because you won’t take some loans

ironcowboy

Actually it did not get “cheaper” for students to attend college… the price has gone up! Hopefully people will use their MBA’s for figure out how it cost more, while appearing to cost less. There is no such thing as a free lunch!

ironcowboy

Actually it did not get “cheaper” for students to attend college… the price has gone up! Hopefully people will use their MBA’s to figure out how it cost more, while appearing to cost less. There is no such thing as a free lunch!

Jamila

More info on Pay as You Earn

”
To be eligible for Pay As You Earn, you must have taken out your first federal loan after Sept. 30, 2007, and you also must have received a loan after Sept. 30, 2011. So the plan will primarily help recent undergraduates trying to manage student debt, providing relief and helping prevent default for many.
How does it work? In addition to meeting the requirements above, you must have a “partial financial hardship” to qualify for Pay As You Earn. This basically means your income is low compared to the amount you owe. Specifically, if you owe more than 10 percent of your discretionary income, which is based on your adjusted gross income and family size, you can enroll your eligible loans in Pay As You Earn.”

@Jamila Now I’m sad again. So previous college students are left hanging out to dry? Boo-hoo.

Jamila

@BlackGirlNerds @Jamila Contact the DOE or your loan processors just to be sure. There may be some loophole. I know I’ll be looking for that loophole it’s time for me to start paying back my loan.

BlackGirlNerds

This is great news! It’s a tragedy how much debt is facilitated by private student loans. Biggest regret of my life was taking out unsubsidized private loans. So in 20 years all is forgiven??? Hmmm…only 14 more years to go!

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